I guess I also have to use the masses or sizes of the objects as well.

It will make a difference if the spaceship collides with a mountain (which certainly will make both of them dealing heavy damage), or the spaceship is colliding with a floating tennisball in which case neither of them are dealing damage.

\$\begingroup\$Great start. Now, how have you tried using this kinetic energy formula in your damage calculations so far? How do the results differ from what you want?\$\endgroup\$
– DMGregory♦Jan 11 at 20:28

\$\begingroup\$I guess for static objects like mountains, both ship and mountain will both get exactly 50% of the kinetic energy as damage? But what about dynamic objects (like another ship), in this case not all of the kinetic energy will be translated into damage but instead in movement, I have basically no idea how to deal with this case.\$\endgroup\$
– codymanixJan 11 at 22:07

2

\$\begingroup\$This is related to the elasticity of the collision. In a 100% elastic collision, the kinetic energy after the collision is equal to the kinetic energy beforehand, and the objects rebound unharmed. You can provide an elasticity parameter that specifies what percentage of the energy you want to preserve this way, versus what percentage you want to absorb into the structure (ie. damage)\$\endgroup\$
– DMGregory♦Jan 11 at 22:19